Thursday, January 5, 2012

Railway Industry Governance and structure: three pillars

In China and in many other countries there is a compelling public interest in the railway industry. How do different countries try to pursue the public interest in railways? This paper finds common elements of governance and institutional structure in eight countries whose diverse railway industries collectively carry about two-thirds of all the railway traffic in the world outside China: Australia, Brazil, Canada, France, Germany, Japan, Russia, and the USA. These common elements are: the existence of a Ministry of Transport with oversight and multi-modal transport policy responsibility; separation of government policy and regulatory functions from the commercial management of railway services; overwhelming preference for company structures (whether private or state-owned) to deliver railway services; multiple service providers; and divisional or institutional separation of freight from passenger services. China's railway industry governance structure is not based on these elements. But changes in transport competition and in the scale of China's railway industry, together with the desirability of a more coordinated national transport system, suggest that now there may be useful lessons for China from the international experience. The paper speculates on three common policy 'pillars' upon which China may wish to base alternatives for consideration.

Railways contribute both to economic growth and social well-being. Rail freight services usually do the land-based ‘heavy lifting’ of national economies, giving producers in key industries access to high-capacity transport at a cost lower than road transport. Passenger railways also perform valuable economic and social roles in dense inter-city corridors, and as part of wellintegrated regional passenger transport systems in densely populated areas.

These roles could often only be transferred to road transport at a higher cost in road infrastructure, traffic congestion, vehicle emissions and traffic accidents. In countries which have suitable corridors and markets to sustain it, the railway industry is a matter of strong public interest. Public interests are what underpin public policies. This paper summarizes public interests and public policies for railways in eight geographically spread case study countries which have large railway industries, namely Australia, Brazil, Canada, Germany, France, Japan, Russia, and the USA. These countries carry about two-thirds of the world’s total railway traffic outside China.

Germany, France, Japan and Russia have, like China, mixed-use railways. By contrast, Australia, Brazil, Canada and the USA have limited passenger train activity outside the cities and are predominantly freight carrying railways. The eight countries therefore have very diverse railway industries in terms of their railway markets, train operations, and ownership characteristics.

What then are the public interests in railway transport in these countries? Naturally, their policy-making bodies prioritize objectives differently and use somewhat different vocabularies. Some countries have explicit national transport strategies which formally articulate government objectives across all modes; others are recorded on ministerial websites or in ministerial statements. To paraphrase, the common denominators of public interest seem to be that railways should be efficient, market-responsive (provide good service to their customers), publicly affordable (not imposing an unsustainable burden on the public purse), safe, and environmentally acceptable.

Despite their very different railway industries, the eight countries pursue public interests in railway transport through public governance and institutional frameworks which have some remarkably similar characteristics.